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A company, Innovate Tools Ltd., is considering purchasing a new machine for $500,000. The machine has a useful life of 8 years and will have no salvage value at the end of its useful life. The company expects the machine to generate an additional $120,000 in net cash inflows annually. The company's cost of capital is 10%. Calculate the following: 1. Annual depreciation expense (using straight-line method). 2. Net present value (NPV) of the machine using the company's cost of capital. 3. Payback period for the machine. 4. Internal Rate of Return (IRR).

A company, Innovate Tools Ltd., is considering purchasing a new machine for $500,000. The machine has a useful life of 8 years and will have no salvage value at the end of its useful life. The company expects the machine to generate an additional $120,000 in net cash inflows annually. The company's cost of capital is 10%. Calculate the following: 1. Annual depreciation expense (using straight-line method). 2. Net present value (NPV) of the machine using the company's cost of capital. 3. Payback period for the machine. 4. Internal Rate of Return (IRR).

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A company, Innovate Tools Ltd., is considering purchasing a new machine for $500,000. The machine has a useful life of 8 years and will have no salvage value at the end of its useful life. The company expects the machine to generate an additional $120,000 in net cash inflows annually. The company's cost of capital is 10%. Calculate the following: 1. Annual depreciation expense (using straight-line method). 2. Net present value (NPV) of the machine using the company's cost of capital. 3. Payback period for the machine. 4. Internal Rate of Return (IRR).
Transcribed Image Text:A company, Innovate Tools Ltd., is considering purchasing a new machine for $500,000. The machine has a useful life of 8 years and will have no salvage value at the end of its useful life. The company expects the machine to generate an additional $120,000 in net cash inflows annually. The company's cost of capital is 10%. Calculate the following: 1. Annual depreciation expense (using straight-line method). 2. Net present value (NPV) of the machine using the company's cost of capital. 3. Payback period for the machine. 4. Internal Rate of Return (IRR).
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